Below is the transcript of the Forest City Enterprises, Inc. (NYSE:FCE.A) Investor Conference Call, held on Wednesday, January 14, 2015, at 10:00 am EST.
Forest City Enterprises, Inc. (NYSE:FCE.A) is an NYSE-listed national real estate company. The Company is principally engaged in the ownership, development, management and acquisition of commercial and residential real estate and land throughout the United States.
Company Executives
David LaRue, President and Chief Executive Officer, Forest City Enterprises, Inc.
Robert G. O’Brien, Forest City Executive Vice President and Chief Financial Officer
Operator
Welcome to this Forest City Enterprises, Inc. (NYSE:FCE.A) Investor Conference Call. The company would like to remind you that today’s remarks include forward-looking comments that are covered under Federal Safe Harbor provisions. Actual results could differ materially from those expressed or implied in such forward-looking statements due to various risks, uncertainties and other factors. Please refer to the cautionary note regarding forward-looking statements outlined in the Form-8K filed by Forest City with the SEC on January 13, 2015, as well as the risk factors included in Forest City’s Annual and Quarterly Reports filed with the SEC for discussion of factors that could cause results to differ. This call is being recorded and a replay will be available beginning at 3:00 PM Eastern Time today. Both the telephone replay and the webcast will be available until February 14, 2015, 11:59 PM Eastern Time. At this time, our participants are in a listen-only-mode. I would now like to turn the call over to the Forest City’s President and CEO, David LaRue. Please, go ahead, Mr. LaRue.
David LaRue, President and Chief Executive Officer, Forest City Enterprises, Inc.
Thank you operator. Good morning everyone. Yesterday we announced that our Board of Directors has approved the plan for Forest City to pursue conversion to a real estate investment trust and that we expect to elect REIT status for our tax we hear beginning on January 1st, 2016. This process is just beginning, so we don’t have the details to share today beyond what was included on our press release, and for that reason, we won’t be questions on today’s call. We simply want to take the opportunity to address investors and share excitement in our enthusiasm about this important and positive step. We expect to have more information to share in the coming months and we’ll keep investors updated as key decisions are made.
Conversion to REIT status is a major milestone for the future of our company. It’s a decision that the board reached after extensive due diligence and analysis of various alternatives. We believe it is the best structure for the company going forward and will best maximize shareholder value for long-term efficiency and by enhancing our ability to deliver a regular dividend to our shareholders. Re-election is a natural extension of work we’ve done over the last several years to execute our strategic plan. Since we launched the plan in 2012, we’ve made real progress in transforming Forest City. We have successfully improved our balance sheet, focused our portfolio to non-core assets sales, reduced the development exposure, raised cost-effective capital to financial partnerships and simplified our overall business. We have more work to do but our efforts to-date have positioned us to pursue conversion to REIT status.
We remain committed to our investment strategy of focusing on core urban markets which we believe provide the greatest opportunity to create value based upon demographic trends. We will service that demand created in these markets via the office, retail and apartment asset classes, so it is important to point out that our overall business strategy is not changing. In fact, we believe our operating portfolio is well-positioned to benefit from the strong growth of the markets where we are focused and we have a pipeline of these additional opportunities in the markets that we believe will fuel further incremental growth. Further, we remain committed to executing our strategic plan including deleveraging and maintaining a prudent and sustainable development level. We have been reviewing and evaluating whether our current SBU structure aligns with and supports our strategies. As we continue that work, we expect to make changes to increased efficiency and productivity and ultimately try to improve operating margins.
I’ll turn it over to Bob now for some additional comments.
Robert G. O’Brien, Executive Vice President and Chief Financial Officer, Forest City Enterprises, Inc.
Thanks Dave. Good morning everybody. I am really happy and pleased to have you up, and to speak to everybody today about yesterday’s announcement. It is really a critical one for Forest City. But maybe you know, we’ve been out frequently, spending more time tonight than we ever in the past about the possibility of becoming a REIT. Part of it has always been that because of the net operating loss carryforward in our balance sheet, were already tax efficient and did not need to become a REIT to achieve that. As we’ve executed our specific plans and focus on core urban markets, we sold nine core assets and used those proceeds primarily to reduce debt. Gains from those sales should reduce our NOLs. We expect proceeds from non-core assets sales this year to be well above our historic averages and as a result, we expect gains from those sales to use the majority of our remaining NOLs by year end 2015.
These conversion will allow us to maintain a tax efficient structure to continue to drive shareholder value and ultimately distributing regular quarterly dividends to shareholders and thus will providing for diversified in the tract of totally turn the shareholders going forward. It is also another step in bringing our business more in line with our peers. As some of you know, in order to convert to a REIT, we will be required to distribute to shareholders all of the companies accumulated earnings and profits. This is what often is referred to as the E&P purge. The 2015 assets sales will not affect our NOLs but they will have a material impact on our accumulated E&P. We expect the E&P distribution to take the form of a combination of cash and common stock.
We have a lot of work ahead to complete the REIT conversion by January 1, 2016. This includes partner discussions, lender consents, regulatory compliance, evaluation of income sources, and establishing the TRS and other REIT compliance issues. While completing all of these work will be a challenge, we are confident that with our talented and dedicated team will meet the timing and necessary requirements. As we indicated in our press release, by mid-year we expect to provide you additional information on the questions I’m sure you all have about targeted levels, rapid sales, leverage, operating margins and development volumes. In addition, we expect to share more details on dividends and distribution of earnings and profits by that time. I will turn it back to Dave for the closing part.
David LaRue, President and Chief Executive Officer, Forest City Enterprises, Inc.
Thanks Bob. We’ve already had a number of discussions with investors and analysts since our announcement yesterday. The response has been positive as had we hoped. As we move forward over these next months, we’d finalize the answers to the many questions you have. We are committed to an open and transparent communication process. Again, thank you all for your support. Thank you for joining us on this brief call today and as we’ve said, we are very excited about yesterday’s announcement and we’ll continue to work hard taking care of strategies which we believe drive increased long-term shareholder value. I want to thank you again and have a great day.
Ladies and gentlemen, that concludes today’s conference. Thank you for your participation. You may now disconnect and have a great day.
